Costco Wholesale Canada continues expansion amid Target, Walmart race

TORONTO • While many retail industry players anxiously watch Target and Walmart racing to expand their store networks across Canada, Costco Wholesale continues to build its presence here as a quietly indomitable retail giant, with plans to build up to 25 more of its vast warehouse stores.

“Our goal is to get to about 110 [stores],” Louise Wendling, senior vice-president and country manager at Costco Wholesale Canada Ltd., said after a presentation with Costco co-founder Jim Sinegal at Retail Council of Canada’s Store 2013 conference.

“We still have a lot of opportunity in Ontario and some of the provinces out West,” she said, citing Montreal, Toronto, Alberta, Saskatchewan and Winnipeg as viable locations for further expansion.

In Canada since 1985, the 30-year-old Seattle-based company has 10-million cardholders here who pay $55 a year for shopping privileges at the bulk-buying behemoth’s 85 warehouse stores, and has managed to operate virtually without competition in Canada since its inception. (Walmart closed six of its rival Sam’s Club stores here in 2009 after they failed to catch on).

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But unlike Walmart and Target, it never advertises, and relies on consumer word-of-mouth to spread news about its deals on electronics, apparel and brand-name goods. The company is now the second-largest retailer in the U.S. behind Walmart and fourth-largest in the world, with 627 stores and US$101-billion in sales.

“What they do, they do very well,” said shopper marketing consultant and conference attendee Lauren Booth. “They are consistent and very no-frills about what they deliver to customers, and ultimately they have great product for the price — people come in for deals, but they also do a lot of impulse buying because they know that the meat they get will be good, or that the spring jacket won’t fall apart.”

In an era in which most retailers are mining data about consumer preferences in order to get an edge on competitors, the company’s merchandising strategy is also refreshingly no-frills.

“We don’t have marketing strategies and management strategies and all of these complicated things,” said Ms. Wendling.

“We are an item business, so it is very simple: you take an item, you bring in an item, you put it on a pallet in one store. After one day, if it doesn’t sell like mad, it’s gone. It’s not rolled out.

“We could go through all of the data we have and all of our membership base and see what trends people are buying and that would take weeks and weeks. We are not into this analysis stuff as much as maybe traditional grocery stores are — we are just very simple.”

The simple formula seems to work: in the last fiscal year, total Canadian revenue rose 12% to $15.7-billion, up from $14-billon a year earlier. Membership renewal rates are 90%, and in the most recent third quarter earnings per share rose 18% while total sales were up 8%, and same-store sales were up 5%. Chief financial officer Richard Galanti said Canada and Mexico had the strongest same-store sales of its international markets.

Mr. Sinegal, Costco’s co-founder and former CEO who retired last year, told the conference that Wall Street criticism about low margins on goods and some of the company’s other unorthodox practices, such as paying employees higher wages and giving richer benefits than other retailers, has quieted over the years as Costco became more profitable.

“One of the things you have to remember about Wall Street is that they are in the business of trying to make money between now and next Tuesday,” he said. “We are in the business of trying to build a business that will be here 50 to 60 years from now.”

While it is too early to assess any impact from Target’s entry into Canada, Ms. Wendling said the competition is positive for consumers and it keeps Costco in check. “We adjust to the competition if they price below us or below cost,” or make a decision to discontinue the item and simply roll in another deal on a pallet.

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